Faster Drilling, Diminishing Returns In Shale Plays Nationwide?

Today’s shale gas boom has brought a surge of drilling across the US, driving natural gas prices to historic lows over the past couple of years. But, according to David Hughes, geoscientist and fellow at the Post Carbon Institute, in the future, we can expect at least the same frenzied rate of drilling – but less and less oil and gas from each well on average.

“It’s been a game changer,” Mr. Hughes said of the shale gas boom at a talk last week in Maryland, “but I would say a temporary game changer.”

After crunching data from hundreds of thousands of oil and gas wells across the U.S., Mr. Hughes found that just five of the country’s 30 best shale plays have been responsible for 80 percent of domestic shale gas production: the Haynesville shale in Louisiana; the Barnett shale in Texas’s Fort Worth region; the Marcellus shale, which underlies New York, Pennsylvania, and parts of Maryland and West Virginia; the Fayetteville shale in Arkansas; and Oklahoma’s Woodford shale. When it comes to natural gas, all of the other plays pale in comparison to these five regions.

But the data reveals that in four of these top five shale-gas plays, drillers have been less and less successful in hitting the next big strike-it-rich well. Average well productivity in four of the five best American shale plays has been falling since 2010, Hughes found. The exception, at least for now, is the Marcellus.

Everywhere else, the regional drop-offs are steep. In the Haynesville play, which quite recently was the nation’s top shale play, wells delivered roughly one third less gas on average in 2012 than in 2010, Hughes found.

In other words, shale gas regions start to lose their luster fast. Mr. Hughes pointed out that the Haynesville was hardly even targeted by shale gas drillers until 2008 – and now the best areas, the sweet spots that produced the gushers the Haynesville became famous for, seem to have been found.

“So how long do these plays last?” Mr Hughes asked at his Maryland talk. “Looking at the Haynesville, probably about 8 to 10 years before we’re on the other side of that production curve.”

It’s not just the Haynesville. In shale plays across the U.S., the sweet spots may have already been identified, Mr. Hughes cautioned. In these sweet spots, drillers can make attractive profits even when natural gas prices plunge. But these areas are rapidly becoming dotted with gas well after gas well – and as the sweet spots fill up, drillers must turn to less promising areas. That’s when average well productivity begins to fall across the play.

Drillers have known for a long time that individual shale gas wells tend to decline at a startling rate. Within three years, the amount of gas flowing from a single shale well can drop 95 percent, Mr. Hughes found — turning what used to be a gusher into a garden hose. Some experts believe that shale gas wells will tend to dry up within 8 to 10 years unless they are re-fracked. Of course, re-fracking not only costs drillers money, making the gas more expensive for consumers, it also has major environmental impacts.

In the Haynesville, for instance, production falls 52% in a well’s first year, Mr. Hughes said. This holds true for shale gas wells nationwide, though the rates vary from play to play. After reviewing drilling logs from thousands of Pennsylvania wells, Hughes confirmed that individual well production shows similar steep declines to those in other plays. This undermines the claims from drillers that wells in the state can continue producing for the next 30 to 40 years.

But these fast declines don’t mean that drilling will stop. Quite the opposite. It means that in order to keep the same amount of domestic natural gas flowing, drillers will need to drill faster and faster – in part to keep up with the declines from each well, and in part because on average, the new wells they drill will perform worse and worse.

If Mr. Hughes’ research is correct, each year, it will be an increasingly massive endeavor just to keep producing the same amount of shale gas that was produced the year before. And for consumers, this means rising natural gas prices.

Hughes, who recently published his findings alongside an analysis by the Energy Policy Forum‘s Deborah Rogers of Wall Street’s role, calculated that nationwide, 7,200 wells will need to be drilled annually, at a cost of more than $42 billion each year, simply to keep shale gas production from falling. But last year, drillers didn’t even make enough money to cover that $42 billion, Hughes discovered.

“In 2012, US shale gas generated just $33 billion (although some wells also produced substantial liquid hydrocarbons, which improved economics),” Hughes wrote in a February 21 article in the journal Nature.

What about fracking for oil? As natural gas prices plunged as a result of the shale boom, drillers have grown increasingly excited about shale oil and some areas have seen major drilling booms as drillers learn to wring oil from shale plays like the Eagle Ford in Texas or North Dakota’s Bakken.

But Hughes also found that the shale formations that are being drilled for oil decline much like shale gas plays. The three shale plays that currently account for two thirds of America’s unconventional oil deposits may be played out quickly, he warned his audience in Maryland.

The Bakken shale formation, which has been touted as one of the richest and most lucrative shale plays in the country, is a quintessential example of these problems, Hughes found. Because Bakken wells are running dry faster than drillers had hoped, new wells will have to be drilled there at an increasing rate to keep the total oil production up.

“Projections by pundits and some government agencies that these technologies can provide endless growth heralding a new era of ‘energy independence,’ in which the U.S. will become a substantial net exporter of energy, are entirely unwarranted based on the fundamentals,” Hughes concluded in his report.

Why does this matter for anyone but the Wall Street investors who were promised a steady flow of profits from these wells?

Hughes offers a simple answer:

“Governments and industry must recognize that shale gas and oil are not cheap or inex­haustible,” he wrote in Nature. “70% of US shale gas comes from fields that are either flat or in decline. And the sustainability of tight-oil production over the longer term is questionable.”

So far, President Obama has ignored these doubts. His administration has continued to call for an “all of the above” approach to energy. In essence, this means continuing to promote oil and gas instead of shifting to renewables. President Obama has also repeatedly cited the claim that American unconventional reserves can provide a century’s worth of natural gas.

But increasingly, the current administration is an outlier in making these sorts of hyped projections. Washington insiders are paying closer attention to the emerging data about how these wells perform. In the past year, many of them have become unconvinced by the industry portrayal of shale gas as cheap, abundant and beneficial.

Jeffery D. Sachs, Professor of Health Policy and Management at Columbia University and a renowned economist and author, is the most recent pundit to join these ranks. In a March 31 editorial in the New York Times, he wrote, “We are in the midst of a short-term boom of shale oil and natural gas.”

Mr. Sachs used his editorial to call for the Obama administration to tackle the hard challenges involved in shifting from dependence on fossil fuels to renewable energy.

“A clearly laid out federal program to support large-scale solar and wind energy, electric vehicles and other smart technologies — and backed partly by public money — would unlock hundreds of billions of dollars of private investments,” Mr. Sachs wrote. “It would secure America’s energy future and protect the environment, too.”

Koch, Conoco Phillips, and Exxon knew this all along. Low prices make natural gas power plants pencil out beautifully (though some wildcatters are going broke drilling for the gas). When gas prices inevitably rise, the plants will be built, and utilities will have no choice but to pay a premium. Easy money for the big boys, and electricity prices higher than wind and (in a few years) even solar.

Meanwhile, the media continues to tout natural gas as the “clean, cheap” fuel. It won’t look that way in a decade, as more wells leak methane into the atmosphere and chemicals into aquifers, and prices double.

This fall off in yield is a common trait of any commodity — it’s a function of “highgrading” — exploitation of the best and richest ore bodies or plays first and progressively poorer sources thereafter.

Because demand is increasing while yields per unit of investment (and energy used to recover the commodity) are decreasing, prices inevitably trend upward and energy returned on energy invested (EROEI) inevitably goes down. Carbon produced per unit of energy used also goes up, of course.

So this is, as Mike said, just a variation on the proverbial drug pusher’s “first one’s free,” offer.

Throw in the methane leaking from fracked formations and this is likely to become one of the most expensive cheap solution in human history.

“President Obama has also repeatedly cited the claim that American unconventional reserves can provide a century’s worth of natural gas.”

This seems to be the conventional wisdom in the main stream media and that the US is due for a new renaissance in homegrown fossil fuels, economic boom, and “energy independence”. It’s now time for a counterpoint in NYT, WSJ, Bloomberg, Economist … Why isn’t this happening?

Sadly, I think it’s wishful thinking that drilling is going to slow down anytime soon. At this point, our efforts should be spent fighting coal exports, IMO. The administration apparently will not stop developing shale oil and gas.

This is what I was afraid of. Like FOX news (except from a leftist end), we can criticize the main stream media as “biased” because it doesn’t comport to our views. Maybe the more accurate but unfortunate truth is that there is plenty of fossil fuel and that fossil fuel technology too will also improve. (Witness the Japanese beginning to look at even methane hydrates.) If we use all the reserves in the ground, we are cooked (Hansen, Mckibben).

After 10 years of dithering the offshore Massachusetts’ Cape Wind project has gotten the green light.
Bottom line 2.6 Billion dollars begets 468 megawatts before capacity factor considerations while 311 Million dollars invested in a Combined Cycle Natural Gas plant generates 570 megawatts. It doesn’t take a Harvard MBA to come to the conclusion that the Cape Wind project is untenable. This is a Son of Solyndra project. It gets better, if you plug in capacity factor, a measure of the percentage of time the project is actually producing electricity, Cape Wind will actually produce 143 megawatts compared to 485 megawatts for the CCNG plant. Absent subsidies and mandates commercial sized wind and solar installations would be built. This is an example of what happens when politicians, both Federal and State, pander to a constituency, rent seekers, and crony capitalists.

‘U.S Government officials’? Do you mean those already previously employed in the industries they ‘regulate’ (‘Soft touch’, of course, as others hired by the hour, rather than for life, promise)or those whose future career prospects in the ‘private sector’ require a suitably ‘business-friendly’ C.V.?